Can These People Teach Financial Planning?

Why classroom experience may not pay off on Wall Street.

It's a scene that has the nervous-perspiration intensity of a training session at a cutthroat brokerage. Attorney Mitzi Lauderdale is drilling her charges on the aspects of estate planning, peppering them with questions: How do you calculate the capital gain on an item that has been gifted multiple times before being sold? What's the key difference between a revocable and irrevocable trust? And what's so good about a Crummey provision? She scans the room, zeroing in like a guided missile on the students who are seemingly least prepared to provide an answer.

It could all be happening behind closed doors on Wall Street, except for a few subtle clues: There's Lauderdale's Texas twang, for example. And her audience's attire -- scruffy T-shirts and jeans. And their average age: too young to remember the 1987 crash or even the tech bubble, because this no-nonsense colloquium is happening on a university campus full of 20-somethings. It is here that students can earn a degree in financial planning, and here, says Lauderdale, that a little tough love doesn't hurt. Long-term financial planning, after all, is a serious matter, whether you're picking the right target-date fund for a client -- or knowing the value of the Crummey provision (an important way to legally keep the tax collector's paws off of gift money, named after one Clifford Crummey). "You need to be able to talk the talk," Lauderdale explains.

These days, you can hear a lot of that talk getting talked in Lubbock, Texas -- Buddy Holly's birthplace, the site of a major sanctuary for prairie dogs and home to more than a few stellar barbecue joints. It's also home to a public university, Texas Tech, that offers one of the nation's most extensive academic programs for financial advisers -- a concept that's surprisingly unfamiliar. Unlike law or medicine, financial planning has been a profession whose educational standards range from slim to nonexistent: In most cases, the advisers who are responsible for a huge chunk of investors' livelihoods aren't required to have any academic qualifications, let alone a specific degree. For decades, advisers were largely considered salespeople -- think stockbrokers schmoozing prospects at a dinner party, not book-learned professionals. Few clients knew or complained. But today, a growing number of veteran financial pros, dissatisfied with the status quo, say people should be howling. "You cannot practice law without a law degree, so why should you be allowed to handle millions of dollars of other people's money without a financial degree?" says David Twibell, president of a financial advisory firm in Englewood, Colo.

That's where the Texas Techs of the world enter the picture. More than 100 schools now offer degrees in financial planning -- from undergrad to doctorate -- and the total number of degree and certificate programs is up about 50 percent from 10 years ago. These schools make the case that the financial advice field needs them now more than ever. Though they may only meet their advisers once or twice a year, millions of Americans rely on them for setting up college-savings plans, creating portfolios and building their retirement nest eggs. The lack of more serious scholarship, the academics argue, is a travesty for a profession that has such a big impact. "It's an industry fraught with problems, abuse, misunderstandings, court cases, you name it," says Texas Tech professor Deena Katz, and the only way around that is "to have advisers with a formalized education."

Still, for all its appeal, the academic-training model is having a surprisingly challenging time gaining traction. Despite the schools' efforts to promote themselves as a pipeline of bright-eyed finance whizzes, the brokerages that employ many of the nation's 316,000 financial advisers don't actively recruit their graduates. Applications to many programs sank when the markets tanked, school officials say, although they're slowly recovering. (At Texas Tech, undergrad enrollment has fallen more than 35 percent since before the financial crisis, which program leaders attribute to the school's toughening standards.) And while the overall number of students has grown over the past decade, it remains a drop in the industry bucket. Financial-planning departments produce, at most, roughly 6,000 graduates a year -- one new degree holder for every 13,000 baby boomers. In comparison, the nation's 200 law schools crank out about 44,000 J.D.s a year.

Part of the problem may be the very industry that these freshly minted advisers are trying to enter. The schools' programs are respected, says Mindy Diamond, a recruiter who works with big firms, including Morgan Stanley, but on the job market the degree "doesn't amount to a hill of beans." Many advisers -- particularly at the biggest brokerages, which tend to train their staff in-house -- question just how well a classroom experience can prepare someone for real-life financial planning, especially in an age of fast-moving, global markets. Even advisers who spent time in the halls of academia have their doubts, such as Glenn Moore, an adviser with Gordon Asset Management in the Durham, N.C., area, who attended a financial-planning program at Virginia Tech. "No amount of schooling," he says, "can fully prepare you for what you encounter on the job."

For an academic movement that's trying to reform a pinstripes-and-skyscrapers financial world, Lubbock is an unlikely headquarters. With its low-slung Spanish Renaissance-style architecture, Texas Tech's sprawling campus feels rural and laconic, the polar opposite of East Coast culture. None of the Ivies can boast a sporting venue devoted to bull riding, to say nothing of a ranching museum that documents the storied days of the Texas cowboy. And the surrounding city of 230,000 is not only a good ways away from the hustle and bustle of Wall Street but also a good ways away from just about anywhere in Texas (a five-hour drive from Dallas and a nine-hour one from Houston). "What's near Lubbock?" deadpans Katz. "Lubbock."

On a relatively humble campus, Texas Tech's financial-planning program has roots that are even humbler -- it started, essentially, as part of the home economics department (or, ahem, the College of Human Sciences). Bill Gustafson, the garrulous founder of the program, explains that budgeting and checkbook balancing have long been taught at public universities as part of the general mission of schooling people in how to take care of their families. About a decade ago, Gustafson and other faculty launched an effort to build the school's curriculum into something bigger, especially with the addition of graduate-level programs -- part of a broader push supported by the Certified Financial Planner Board of Standards, the umbrella organization for such planners. (Among the key hires was Katz, a widely published author with a prominent financial-planning practice in South Florida.) Today, Texas Tech's planner program is the country's biggest, with 13 faculty, 280 students -- a shade under half of them undergrads -- and the nation's first financial-planning Ph.D. program, funded in part by a $2 million grant from the CFP Board. And the program just celebrated its own graduation of sorts: In the fall of 2011, Texas Tech announced it was promoting the program from a junior "division" to a full-fledged "department." (The last field of study to get that treatment at Texas Tech was an arcane little discipline called computer science.)

The program's academic reach has certainly gotten more ambitious. On a recent day in the basement of a campus lab, Russell James is working with a brain-scanning machine that wouldn't look out of place in a top-notch hospital. James isn't a mad scientist or even a doctor by training -- he spent much of his career as an estate-planning attorney -- but today he's in full lab-coat mode. His project: presenting 20 test subjects with questions about market conditions as the machine scans their skulls. As the subjects react, James observes different parts of their brains at work -- the fear-sensitive amygdala, the reasoning-oriented prefrontal cortex. The images will theoretically show their subjects' unspoken feelings about these money questions. James's work might someday give advisers insight into which situations scare their clients most: "Here, I can see if there's a fear response taking place," he says.

Of course, the financial-planning curriculum can induce panic of a different kind. The bachelor's degree requires 55 credits of specialized classes plus nine credits of math. (A master's degree requires another year of study; a Ph.D. can take four more.) It's safe to say few undergrads are camping out at the registrar's office to sign up for "Financial Counseling and Consumer Credit." But at least getting the degree won't break the bank: Tuition and fees run less than $8,500 a year for Texas residents and about twice that for out-of-state students. Undergrads conclude the major with the equivalent of a thesis project, a comprehensive financial plan that covers a mock client's investments, insurance needs and estate planning -- heady stuff for 22-year-olds. And before that, students are encouraged to volunteer as advisers to classmates, counseling them on moving dough from the beer budget to the rainy-day fund.

That volunteering ethos is a flag that the faculty are eager to wave. Texas Tech and its peers describe their programs as answering to a higher calling than that of the average wheeler-dealer broker. In practice, that can affect both the advice they give and the way their graduates get paid. Brokers, who work on commission, aren't bound by the so-called fiduciary standard, which requires that advisers work in a client's best interests. But registered investment advisers, who typically charge a fee for their services, are held to that standard. Like most academic programs, Texas Tech's teaches the fiduciary way, a fact that tends to yield students with altruistic zeal, like Leobardo Diosdado. "The program is geared toward helping, not selling," says Diosdado, who came to Texas Tech from Sulphur Springs, Texas, to pursue his master's.

But the way some brokerages and advisory firms see it, there's no reason Diosdado's education, or anyone's, has to take place on a university campus. Most big brokerage houses still have their own in-house education programs, teaching financial basics so that trainees can get licensed to sell securities and provide advice. Newbies don't pay for this instruction -- if anything, they earn a salary while they go to "school." But just as important: The brokerage programs weave in lessons for trainees on enlisting and retaining clients in a practice of their own. Tom Fickinger, head of financial-adviser strategy for Merrill Lynch, says financial-planning studies can be a plus on a résumé -- it shows commitment. But ultimately his firm's program is "more real life," he says. "You're building a business." Without salesmanship and people skills, brokerages argue, planners will never turn their acumen into a solid living. That's one reason many brokerages, hoping to better serve an aging clientele, are trying to hire more mature people who come to the firms with a Rolodex of contacts -- even if their previous work experience isn't in finance. "It's not what you know; it's who you know," says Diamond, the Wall Street recruiter.

Some critics also complain that the schools' curriculum can feel outdated, given how rapidly and unpredictably the subject matter changes. In the aftermath of the 2008 crash, for example, many veteran advisers began putting traditional buy-and-hold strategies aside in favor of more active trading. But the academic programs have mostly stuck to the old-school tradition: "At all universities, it's a buy-and-hold world," says Joe Duran, chief executive officer of United Capital, a chain of advisories that hires dozens of fresh-out-of-college entry-level planners every year. In general, the schools are unapologetic about this, although they also say the traditional theories aren't all they teach. Tech's Katz says that "there is extensive discussion of both active and passive investment management." Similarly, Doug Iles, the financial-planning director at Central Michigan University, says his faculty pulls out trade publications and news articles when textbooks seem stale. The handouts at one recent course were "three times thicker than the textbook," he says.

In the end, proponents of these schools say prestige may be the biggest hurdle for this corner of academia. Entry-level financial planners with CFP credentials typically earn just under $60,000 -- slightly more than advisers without such certification, but less than half of what a first-year MBA finance grad can earn. And many universities with a higher academic and economic profile simply don't teach the curriculum, arguing that, by definition, it's too "preprofessional" for their missions. (The highest-ranked college to offer an undergraduate major in financial planning is the University of Wisconsin, tied for 42nd on the U.S. News and World Report college list.)

But back in Lubbock, where the financial-planning students often dress for industry events in matching red team-spirit polo shirts (and occasionally in the attire of the school's Masked Rider mascot), the soon-to-be graduates seem pretty confident about the future. It helps that they have a rather large group in their corner: baby boomers. As they age, a cadre of nearly 80 million is perilously close to retirement and in need of help -- all at a time when the ranks of advisers have been slowly shrinking. "We hear all the time that advisers are getting old," says Katie Horton, a 26-year-old grad student planning to hit the job market this spring. "There are a lot of people who are looking for people like me."

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